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Free-falling dot-com share values have driven some online companies to re-issue now-worthless employee stock options in an effort to keep morale up amid the market downturn.

Companies such as media-delivery and digital-distribution firm RealNetworks Inc., business-to-business (B-to-B) software players i2 Technologies Inc., Ariba Inc. and WebMethods Inc. are just a handful of dot-coms that have reshuffled their benefit packages to try to avoid having employees rejoin the ranks of traditional business — or one of their competitors.

WebMethods, whose stock hit a 52-week low April 5 at US$14.37, down from its 52-week high of $194.87 last July 17, joined the crowd of option jugglers last week after posting a fourth quarter earnings warning. The move was made due to “macroeconomic conditions,” company Director of Investor Relations David Spille said. Former tech stock golden child Ariba also introduced an option trade-in plan Feb. 9 following an announcement that its first quarter earnings would be half the initial expected amount.

To re-inject employees’ benefits and keep them on board, these companies and a host of others like them are giving their staff the chance to trade in their original options for re-issued options that have a different exercise price, or fixed price at which the employees can buy shares, which is determined by the stock price at the date of issue. The options were originally intended as bonuses, assuming that the price of the stock would steadily grow from the employee’s start date, allowing them over time to buy stock at a lower price than its value. In a lot of cases, this did not happen, however. As share prices went belly-up, employees, many of whom negotiated their compensation and benefits packages with an eye on fat bonuses from stock sales, were left with thin options.

So stock-slumping dot-coms are increasingly turning to an option re-issue program commonly referred to as “six-and-one.” Under this type of plan companies can cancel options and re-issue them, no sooner than six months and one day later, according to accounting laws.

“When you withdraw and re-issue options, it has an impact on the financial statement,” notes Alan Yong, research director of Financial Analytics at Aberdeen Group Inc. in Boston. “But if you don’t have profits, what do you have to lose?”

i2 Technologies joined the ranks of option traders last March, hoping to remain competitive among a slew of technology companies that began offering programs along the same lines when the market began to falter last year. Many of i2 Technology’s stock options were issued when the company’s stock was at a level “we’re not likely to return to anytime soon,” said company Investor Relations Director Brent Anderson.

Media delivery and digital distribution firm RealNetworks also announced a six-and-one in February of this year, shortly before its shares hit a new 52-week low of $5.00 on March 16. E-commerce software provider Commerce One Inc. joined the re-issue game in March and hit a 52-week low shortly after in April.

“They are doing it because everybody else is doing it,” says Yong. But the re-issue game has less of an impact than it did in the good old days when there seemed to be no cap on dot-coms’ potential.

Now that the market has turned tough, “people are more predisposed to liquid benefits than they were a year ago,” says Yong.

These days, dot-com employees want cash. While the six-and-one option plan is a step up from the now-lifeless original options, companies might take note of alternatives that offer employees liquidity. One of these alternative is offering stock appreciation rights which pay cold-cash benefits to employees as the company prospers, says Yong. Stock appreciation rights allow the company to take cash deductions while avoiding a dilution of the equity companies have in their stock.

Whether companies choose the six-and-one re-issue plan or a new way of providing employees with tangible benefits, the growth (and contraction) of the New Economy is demanding a new approach to keeping employees happy while keeping them in the game.